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Do Leaks Imperil M&A Deals?




Andrew Pearson
Managing Director EMEA
IntraLinks

IntraLinks and Cass study indicates leaked deals cost time and money

  • Controlling the flow of information crucial to M&A deal completion
  • More than half the deals leaked to the press do not run to completion
  • Premium paid could be 13 percent lower if deal is leaked
  • Leaked deals take 70 percent longer to complete

The research study “M&A leaks: Issues of information control” commissioned by IntraLinks, the leading provider of online workspaces, and conducted by Cass Business School, London, has revealed that less than half (49 percent) of all leaked deals complete, compared to 72 percent of non-leaked deals.

In what is thought to be the world’s first research focused on pre-announcement market leaks in M&A, Cass established a universe of over 350,000 M&A deals between 1994 and 2007, and then using rigorous search criteria distilled the number of deals that had been disclosed in the press prematurely. 

The exhaustive research project cast light on the sensitivities inherent within M&A activity and the destabilizing effect a press leak could have on the deal process – revealing that while 97 percent of non-leaked deals are classified as friendly (a deal completed with Board endorsement) this figure drops to 80 percent where there are instances of identifiable leaks. 

The study showed that both the target and bidder might suffer in the process – the results indicate that the premium paid by the winner in a leaked deal is on average 13 percent lower than in non-leaked deals. This runs counter to the belief by some sellers that a premature deal announcement will attract more bidders and drive-up pricing.

Further illustrating the impact a press leak might have, the study also suggests that while the average time taken for a non-leaked deal to complete stands at 62 days, this figure increases by 43 days (or 70 percent) – bringing the average time to complete to 105 days – if the deal is prematurely announced.

Andrew Pearson, Managing Director EMEA at IntraLinks, commented “Many people in many organizations are involved in the M&A process, and since they all now have access to electronic communication channels, it is more important than ever to control and monitor the flow of information about a deal before it has been announced. The time preceding a deal announcement is a particularly sensitive point in the M&A process and our research shows the potential damage caused by press leaks at this stage. Centralizing information flow through a system with a complete audit trail engenders better behavior and trust that confidentiality will be respected.”

Professor Scott Moeller, M&A lecturer and former managing director and senior investment banker at Deutsche Bank and Morgan Stanley, commented on the research that he supervised, “Market leaks and insider trading receive considerable press attention but this is the first study to identify the impact of a pre-announcement leak to the press.  Companies would be wise to heed the factors identified in this research so that they are fully aware of the historical impact of such leaks on deal activity.”

Andrew Pearson, Managing Director EMEA at IntraLinks, concluded “As the financial industry looks at better ways to manage and mitigate risk we anticipate virtual datarooms (VDRs) will really showcase their value.  Confidentiality and speed are vital to the success of the financial markets – the very ethos lying behind VDRs and their use in the M&A process.” 

Founded in 1996, IntraLinks is headquartered in New York with offices around the world.

Cass Business School, City University, undertakes research of national and international significance and supports almost 100 PhD students. Cass has the largest Finance Faculty and the largest Actuarial Science & Insurance Faculty in Europe. Our finance research is ranked 2nd in Europe and 4th in the World outside the US by Financial Management Magazine and our insurance and risk research is ranked 2nd in the world by the Journal of Risk and Insurance.








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